The new Ontario 13% HST becomes effective on July 1, 2010. It is not too early to start thinking about how harmonization will affect your business. Here are some things that all businesses, not just Toronto Chartered Accountants, need to consider as July 1 approaches:

• Accounting system needs to be changed by the corporate firm accountant to accommodate the HST. New general ledger accounts need to be set up. The new tax actually has 2 components, the 5% GST and the 8% HST. If you are a charity, it is important to track these two components separately, since the ITC refund is calculated only on the 8% HST portion. In addition, the format of sales invoices needs to be modified to incorporate the HST.
• Budgeting for HST: The impact of the introduction of HST on budgets and cash flow will need to be evaluated. Previously unrecoverable PST will now be recoverable as ITC's, reducing business costs after July 1. Cash flows will be affected due to the collection and remittance of HST on a broader range of products than before. The impact of the time lag between paying 13% HST on sales to the government and subsequent collection of HST from customers will be much larger than the 5% GST impact.
• Contracts: businesses will need to review existing contracts to determine the impact of harmonization on these agreements. In particular, any existing contracts that quote prices including taxes should be renegotiated. New contracts being set up also need to be considered in the light of HST.
• Planned expenditures: If possible, summer 2010 expenditures which include PST should be deferred until after June 30 so that the provincial component of the tax paid will qualify for an ITC and thus be refundable. It may not be much of an issue for small expenditures, but anything with a substantial dollar value should be deferred if at all possible, which would result in a reduced total cost.

There are other issues affecting cross-border transactions and transitional rules for specific transactions that straddle the July 1 startup date. Please contact us at 905-943-4046 if you need further assistance or accounting services in the coming months. Click here for additional contact information